Thursday, August 23, 2007

DENMARK TO REDUCE INCOME TAX

Tax-news.comreports that:"The Danish government has announced its intention to cut taxes by DKK10 billion (EUR1.34 billion) per year in 2008 and 2009 in a bid to stimulate the labour market, and improve incentives to work. Under the proposed reforms, announced by the government on Tuesday, the income ceiling for the middle and top income tax brackets will be raised to DKK353,000 per year from DKK304,100, and to DKK381,300 per year from DKK365,000, respectively.The government is also proposing to raise the employment tax deduction, which is subtracted by all working wage earners, to 4.7% from 2.5%. Some of these tax cuts would take effect on January 1, 2008, with the total tax cut package coming into force on January 1, 2009.In the same announcement, the Danish government also promised that a broad economic plan for the next eight years would not raise any taxes between now and 2015. The economic package also promises DKK50 billion in extra spending to improve Denmark's welfare system between 2009 and 2018."Source: Denmark to Cut Income Tax (link)

Despite high tax rates on individual income with the marginal rate of 59 percent, Denmark enjoys a deregulated and relatively flexible labor market compared to the rest of the world. However, the real aggregate tax burden dropped by 0,8 percentage point and is now 47,2 percent of the annual GDP. Tinkering tax brackets instead of real income tax cuts could, in turn, increase compliance instead of reducing the punitive rates on personal income to stimulate labor productivity and ease cost pressures arising from wage-increase claims.